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Retirement Living - An analysis of the Law Commission Report

The Law Commission has finally completed its investigation into the lease terms used in the retirement industry.  It reported to the Government on 31st March 2017 and the Government will now consider how to respond.  Broadly, the Commission have concluded that event fees should not be abolished (as some stakeholders were advocating) but instead have suggested that there is a case for providing older consumers with greater protection and clarity by regulating event fee terms.  The Report recommends that such regulation could involve:

  1. Preventing event fees from being charged in unexpected circumstances.

  2. Imposing obligations on landlords/operators to provide standardised and transparent information about event fees to consumers at an early stage. This would include an indication of how much a consumer may have to pay, enabling informed choices to be made.

  3. Making it easier for consumers to challenge unfair event fees (i.e. those not complying with the above) by providing increased legal certainty.

The Law Commission has drafted a code of practice and is recommending to Government that it is given statutory approval under the Leasehold Reform, Housing and Urban Development Act 1993, Section 87.  The code limits the circumstances in which event fees may be charged and, in certain circumstances, the amount that can be charged.  It also imposes obligations on the landlord/operator to provide transparent information about event fees to consumers at an early stage of the purchase process, including an indication of how much the event fee is likely to be.  The Code of Practice does impose further obligations on the landlord/operator to cap event fees that may be charged on sub-letting or change of occupancy, to a maximum limit.  There are some fairly complex provisions as to when and how the prescribed cap will apply, particularly as the prescribed cap is calculated on the purchase price or open market value of the property, whichever is the lower amount.  The Code of Practice sets out a formula to calculate the prescribed cap. 

Where event fees are calculated on the length of ownership of the property, then the Code of Practice recommends that no event fee is payable on sub-letting or change of occupancy until the maximum rate is reached.  The intention is to ensure that the landlord/operator is not paid an event fee twice for the same period of time.

There are also recommendations as to how a landlord/operator should advertise a retirement property, as that advert must state that an event fee is payable with a general indication of the amount and method of calculation.  There is also an obligation to provide a prospective buyer with a disclosure document when that buyer expresses an interest in a particular property.  For properties which are not sold off-plan, a disclosure document must be provided on the prospective buyer’s first visit to the property. 

Their report also recommends that where retirement properties are sold by an estate agent, the estate agent may not be aware that event fees apply and, therefore, this should be addressed by use of a central online database.  Although the exact nature of that database is not clear, it is suggested there would be an obligation on the landlord/operator to provide a disclosure document to the estate agent or consumer within a fixed timescale of two working days following request for details of any event fees that may apply. This would seem to us an extremely short period of time for any commercial entity to respond (and respond accurately) to such an enquiry and, if carried through into legislation, will mean that landlords/operators will need to be extremely efficient in keeping a record of the necessary information and have procedures in place to react quickly.

Finally, the report recommends that where there has been a breach of the Code of Practice, the relevant event fee term should be presumed to be unfair and unenforceable.  It is suggested that the best way to achieve this would be to amend Schedule 2 to the Consumer Rights Act 2015, having the effect of adding non-compliant event fees to the ‘grey list’ of contract terms which may be regarded by a court as indicatively unfair.  This recommended amendment to the grey list is suggested to only apply to new leases created after such an amendment, with existing leases being unaffected (albeit that there is a suggestion that possible future reform could include the grey list applying to an existing lease on the occasion of its next assignment). 

While the contents of the report are not unexpected as the Law Commission has engaged very thoroughly with the stakeholders concerned, it does have significant implications for retirement village operators including as to the nature of the standard leases that they use and the records and information that they keep. 

Do please contact us if you have any concerns over the impact on your business or the response that may be required.

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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